The Core Of Kazakhstan’s Cooperation With The EU Is Energy

The Prime Minister of Kazakhstan, Karim Massimov, talks to New Europe.

Mr. Prime Minister, quite recently you have discussed bilateral cooperation with your Russian colleague Vladimir Putin. How do you see the future of the Customs Union among Russia, Belarus and Kazakhstan?

The creation of the Customs Union is the first step to real integration on the post-Soviet territory. Attempts to create a Eurasian union were undertaken repeatedly, and President Nursultan Nazarbayev was the first to voice this idea in 1994. However, for various reasons, such attempts have not been successful. Time for concrete actions has come in 2007 when the heads of three states have signed an Agreement on creation of the uniform customs territory and formation of a customs union. At present time, we have a continuous dialogue between the participating states at the level of the heads of state and government, and at the Commission of the Union to which the power on changing customs rates was delegated. In the beginning of March, I once again met Prime Minister of Russia Vladimir Putin. Of course, issues related to the Customs Union were among the main subjects for discussions. Quite recently there were a lot of disputable themes, relating specifically to formulae to be used for dividing the collected customs payments between the participants of the union. This question was a stumbling block, but as a result a conciliatory decision was found. The mechanism of payments distribution will start to work in a test mode in April. After a detailed discussion, the text of the Customs Code – the main document of the union, - is finally approved. In Moscow, we have once again confirmed the timing of further steps in the direction of our economic integration. By January 2012, the uniform economic space should be formed. It is the nearest future of the Customs union, which will thus acquire a new quality. We create the Customs Union taking into account the best world experience. Naturally, the EU has been taken as an example. In the future, we would like to see the Central Asian states – our neighbors, and Ukraine - as our partners in the Customs Union. Contacts are already being made with the Ukrainian new leadership about it. Now, it is difficult to foresee in all details how the integration processes will go. However, in the early fifties of the last century it was also difficult to forecast that the European Union will grow out of the European Coal and Steel Community.

Partner relations with Russia are one of the priorities of our foreign policy. To answer the question why it is so, it is enough to look at the map: our general land border stretches for about 7,500 kilometers. But it is not only geography. Interaction and mutual understanding on the highest level, historically developed good neighborliness and friendship between our people, readiness of our countries for dialogue are main components of successful development of relations. Our recent conversations with my Russian colleague Vladimir Putin have been carried out exactly in this spirit. Mr Putin pays much attention to the issues of the Customs Union. It will be fair to tell that this union has taken place personally due to him. We value friendship with Russia. But, at the same time, we consider the European Union, the USA, Asian countries as equally important strategic partners. I would also like to note that in relation to Russia we are talking only about economic integration. Politically we remain sovereign states, with our internal and foreign policies defined by the peoples of each country.

How do you see the development of economic and energy relations with the EU?

The European Union, obviously, is one of our main trade and economic and investment partners. Suffice it to say that approximately 40 percent of our overall foreign trade turnover is accounted for by the EU. In 2009, our trade amounted to 28.8 billion dollars. The European Union countries invest considerably in Kazakhstan economy and have long term strategic interests in our country. I will remind that during the visit of President Nicolas Sarkozy of France to Astana in October 2009, agreements and memorandums in the amount of 5.6 billion dollars were signed, and during the official visit of President Nursultan Nazarbayev to Rome last November joint investment contracts for the amount of 1.3 billion dollars were concluded. The core of Kazakhstan’s trade and economic cooperation with the European Union is the energy dialogue. Already, Kazakhstan is the third largest non-OPEC supplier of energy resources to Europe. In a number of EU states, the share of our oil supplies is rather high. For example, in Romania it comprises 30 percent, and in Austria – 20 percent of the market. Further development of bilateral partnership will promote strengthening energy security of the European countries. We are interested in expanding the dialogue on realization of oil and gas projects and in cooperation in increasing energy efficiency, using renewed energy sources, in peaceful nuclear energy and in electric power industry. Recently, France and Kazakhstan have voiced their intentions to develop cooperation in energy, transport and economic spheres, and also trade.

What is the future for the foreign companies working in Kazakhstan?

The question of attraction of foreign direct investments is a key for realization of our plans on the accelerated development of economy, as declared by President Nursultan Nazarbayev in his address to the people of Kazakhstan on January 29. During the past nine years Kazakhstan has been one of the leaders of the CIS countries in terms of economic attractiveness for potential investors, in many respects due to our political stability. Moreover, until recently, the raw materials sector has been the most attractive for investors. Now, it is necessary to create conditions for maximum attraction of foreign investments in manufacturing, high-tech and knowledge-intensive productions. As of today, agreements have already been reached for investments in the amount of 20 billion dollars to be made in the non-raw materials sector of our economy. This inflow will enable launching dozens of industrial and infrastructural objects. The simplification in order of using tax preferences by investors is one of the measures to improve the investment climate in the real sector of economy. It has been envisaged in the new Tax Code, which came into effect on January 2009. Kazakhstan has signed a number of agreements on mutual protection of investments, 43 bilateral (with the United States, Britain, Germany, France, Russia, Netherlands, Turkey, etc.) and one multilateral agreement (Eurasian Economic Community). Our new program on boosted industrial and innovative development creates exclusive conditions for transnational companies investing in Kazakhstan’s industry. The proposed integral program includes both incentives and institutional mechanisms for working with foreign investors.

You have said that Kazakhstan seeks cooperation with other countries in the sphere of energy and oil and gas. At that, do you support high tax rates on oil?

Our taxation system in the sphere of natural resources extraction, not only in oil, has recently undergone major changes. Until January 1, 2009, there have been two modes for subsurface use contracts in Kazakhstan, production sharing agreements and the “taxes plus royalties” regime. Currently, the Tax Code does not provide for the possibility of concluding a PSA. But with regard to agreements which were signed in the past, only a long negotiation process is possible. It is necessary to understand how to make the transition to the new tax regime beneficial for subsurface users themselves. I believe we will certainly be able to find a mutually beneficial compromise. The increase in the tax burden on subsurface users is a quite logical and inevitable process reflecting direct interests of the state. At that, Kazakhstan still remains attractive for investments in raw-materials sector. Let us turn to the world practice. In some countries, the tax burden coefficient in this area reaches 75 percent, while in Kazakhstan, mandatory contributions to the state account for 30-40 percent, while two or three years ago this index was at 15-17 percent. It is clear that such favorable conditions could not continue endlessly. Henceforth, the legislation of Kazakhstan now establishes equal and competitive work principles for all subsurface users.

What lessons has Kazakhstan learnt from the recent global economic crisis?

Recently, President Nursultan Nazarbayev has stated a clear formula summing up the lessons of recent years for the business community of Kazakhstan. It‘s message of living within one’s means and to prepare for hardship during good times is quite suitable for the country on the whole, and for most modern states. Already in August 2000, earlier than other CIS countries, we have established a National Fund, a kind of safety cushion. It has not only helped save oil exports revenues for future Kazakhstan generations, but has now become one of the most important macroeconomic regulators, ensuring sustainability of the budget system. We have used its funds to finance our anti-crisis program, which is recognized by experts as the best among the CIS countries. Now, a certain part of the National Fund savings will be used for structural reforms of the economy. Today, we need to ensure not only accelerated growth, but achieve its new quality. This is the aim of the Strategic Plan of Development of the Republic of Kazakhstan until 2020. The main task for the next ten years is to ensure diversification of the economy with a more rapid development of the manufacturing sector.

You have talked a lot about the role of the state in economic diversification. What role do you give to the private initiative?

Only local entrepreneurs can provide a stable and efficient development of national economy, who will be given all possible government support. To this end, a new program “Business Road Map 2020”, which provides entrepreneurs with access to cheap loans has been recently adopted. Business and state are allies and partners in achieving overall economic success. Even during crisis, substantial funds were allocated from the budget to support small and medium-sized businesses. We went to a sharp reduction of administrative barriers for the sector. As a result, in 2009 Kazakhstan has improved its position in the “Doing Business” rating of the World Bank, which measures the degree of favorable conditions for business activities. As we were conducting anti-crisis measures, the state’s role had increased, creating temptation to solve everything by bureaucratic regulation. But it is very dangerous, since we will not be able to build a prosperous society without private initiative and without activity of millions of citizens. We have extensively discussed with the representatives of business and financial community all pending reforms. We have always found their support. I am confident that together we will create a sensible competitive economy, once again proving that we have learned to use the crisis to make a leap forward.